The two companies are in very different businesses, but have some things in common:

• Currently loss-making, but huge potential
• Fundraisings at/near all-time lows announced this week
• Woodford taking the opportunity to significantly increase his investments

RM2 International

RM2 International listed on AIM in January 2014, raising £137m at 88p a share. Woodford soon bought into the company with the launch of his CF Woodford Equity Income Fund in the summer of last year, notifying a 7.5% stake in June. By the end of August this year, his holding was up to over 21%.

A placing by RM2 announced this week to raise £30m is at an all-time low share price of 40p. Woodford has subscribed for shares in the placing, which will take his interest to 27% of the enlarged share capital. Supporters like Woodford are averaging down from higher prices, but new investors today are being offered a low entry point, with the shares currently trading in the market at 43p.

RM2 is seeking to establish “a disruptive presence in global pallet supply and improve the supply chain of manufacturing and distribution businesses through the effective and efficient use and management of composite pallets”. The company has some heavyweight non-executive directors on board, including Paul Walsh (chief executive of Diageo from 2000 to 2013) and Stuart Rose (boss of Marks & Spencer from 2004 to 2010).

RM2 is not only currently loss-making ($25m over the last six months), but also has virtually no revenue at this stage. This week’s placing follows hot on the heels of a setback. The company had expected a substantial upswing in production and revenue to begin in Q3 this year and accelerate through Q4. However, feedback from customers has led management to drop a friction coating method for pallets in favour of a new gel-based system, which has delayed production and revenue targets to 2016.

My problem with RM2 is not that it’s had a hiccup — to be expected with a developing business — but that I haven’t been able to find any detail on the long-term revenue opportunity for the company and the kind of margins it hopes to make. However, it’s very likely Woodford has a far better idea of RM2’s prospects than me!

Netscientific

Netscientific, which funds and builds companies in the area of biomedical and healthcare technology, listed on AIM in September 2013, raising £30m at 160p a share. Again, the CF Woodford Equity Income Fund acquired an initial stake in this one last year — a 4.4% holding notified on 4 July, which quickly went up to 10% a week later. The most recent disclosure came in June this year, at which point Woodford’s stake had risen to 29.4%.

Netscientific’s shares reached a high of over 200p as recently as July. Today the company has announced a placing to raise £20m at 120p (10p above the all-time low), although you’ll currently have to pay 132p in the market. Woodford has subscribed for shares in the placing that will take his stake in Netscientific to a whopping 45.3% — a level which requires a waiver of rules that oblige him to make a takeover offer for the company!

Netscientific hasn’t had the kind of setback suffered by RM2, although it has been through a strategy review and operational management reorganisation. The purpose of the fundraising is to accelerate the development of the group’s two lead portfolio companies “towards significant value inflection milestones and exits”.

Woodford only owns one pallets business, but he has a number of similar-type investment companies to Netscientific in his portfolios, as well as numerous individual early-stage businesses in the same general area. So, while he’s clearly very keen on Netscientific, he really spreads his bets widely in this space, which is something well worth bearing in mind.

The post Neil Woodford Ramps Up His Stake In RM2 International SA And Netscientific PLC appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

In fact, PDS0101 could provide a clear alternative to the removal of lesions to overcome pre-cervical cancer (which is the current practice) and, as such, the market has reacted very favourably to the news flow. And, while shares in Netscientific are down by 12% today, it is likely to be a result of profit-taking after such a superb gain in Thursday’s trading session.

Diversity

Of course, Netscientific’s share price performance in the months prior to the announcement was very disappointing. Its shares fell from around 166p in January to as low as 110p in April. This shows that in the health care sector it is imperative to have diversity since, especially among companies that are heavily involved in research and development, volatility can be particularly high.

As such, investors seeking a less volatile shareholder experience may be better served by investing in a medical devices company such as Smith & Nephew (LSE: SN). It may not offer the same potential rewards as a smaller, research stock such as Netscientific, but it also comes with far less risk. For example, while Netscientific remains a loss-making company that is largely reliant upon the outcome of development programmes, Smith & Nephew has been hugely profitable in each of the last five years, with its bottom line set to grow by a further 13% next year, which is around twice the growth rate of the wider market.

Size And Scale

Furthermore, Netscientific remains a relatively small company with a market capitalisation of just £60m. Compare this to Dechra Pharmaceuticals (LSE: DPH), which has a market capitalisation of £928m and it is clear that the latter has significantly greater size and scale. While it could be argued that this makes Dechra less nimble than Netscientific, it could also mean that it has more stable finances and that it is a safer long term bet. And, with Dechra having increased its net profit at an average rate of 14% per annum during the last five years, it remains a relatively appealing growth play, too.

Looking Ahead

While Netscientific has performed extremely well in recent days, it remains a relatively high risk play. Certainly, it appears to have a bright future and news flow this week has been very positive, however it seems prudent to pair it up with larger, more robust peers that offer a degree of stability in the medium to long term. As such, a combination of Netscientific, Smith & Nephew and Dechra seems to be a sound move for longer-term investors.

The post Is Netscientific PLC A Better Buy Than Smith & Nephew plc And Dechra Pharmaceuticals plc? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Peter Stephens does not own shares in any of the companies mentioned.